Hard Brexit – sell sterling
By Peter Rosenstreich
A hard Brexit looks more likely. The Irish border will find a solution, but around the corner will come another show-stopper. And negotiations have not even started on the difficult part: trade. So risk-reward favours long EUR/GBP, which is holding around the 200-day moving average with a clear close above 0.8850 triggering a bullish extension to 0.8879.
A core theme for 2018 will be the ascensions of the EU from fragile union to a unified political and economic force. We can see the start in the current EU/UK Brexit negotiations. British Prime Minister Theresa May and European Commission President Jean-Claude Juncker failed to make progress, after hours of discussion, with differences over Irish border. Talks will resume later this week. Still, we see a deal at the 14-15 December EU Council meeting as unlikely.
Aussie to slide vs USD
By Yann Quelenn
Australia’s prime interest rate has been held again at 1.50%, for the 16th month in a row. The rate has not risen since 2010. The central bank will follow major central banks and not lead the move of monetary policy normalization. Markets expect rates to remain on hold until at least 2019. So the Aussie is falling against the greenback and will continue.
Economic conditions look mixed. Low inflation and low wage growth prevent any rate hike soon. The central bank says debt levels are high: debt went from 15% to 45% of the GDP since 2009. The era of free money has created and is still underpinning bubbles in all asset-classes, such as housing. Raising rates may trigger a massive bubble burst.